N.J. raising gas tax 23 cents to end road funding crisis

Posted on September 30, 2016

NJ.com- Gov. Chris Christie and Democratic leaders announced Friday they have reached a deal for transportation funding that will raise New Jersey's gas tax by 23 cents a gallon, ending a summer-long standoff and statewide construction freeze.

For motorists, the higher gas taxes could come in early October. But it will be offset somewhat by a reduction in the sales tax from 7 percent to 6.875 in 2017 and 6.625 percent in 2018.

The sales tax is part of a package of tax cuts the lawmakers agreed to in exchange for the first gas tax hike since 1988. The compromise struck Friday afternoon also eliminates the estate tax, eases taxes on retirement income, boosts the Earned Income Tax Credit for the working poor and creates a tax deduction for veterans.

The deal seeks to replenish the state's Transportation Trust Fund, which pays for road and rail projects and is backed by gas taxes. The fund ran out of money for new projects last month. Christie by executive order in early July idled more than 900 road and bridge projects and hundreds more rail projects to ration the money remaining in the trust fund.

Both houses of the State Legislature will be called into a special committee hearing and voting session Wednesday morning, Assembly Speaker Vincent Prieto (D-Hudson) said. The increase in the gas take would take effect after it received legislative approval and is signed by the governor.

AAA has estimated that an additional 23 cents a gallon at the pump will cost the average driver about $170 more a year. At 37.5 cents a gallon, gas taxes in the Garden State will go from second-lowest in the U.S. to seventh-highest.

"It's cheaper than New York. It's cheaper than Pennsylvania. It's cheaper than Connecticut," Sweeney said. "We will still have the lowest gas tax in this region."

The new, 23 cent tax will finance an eight-year, $16 billion transportation program that Christie boasted will improve the state's infrastructure and economy.

The governor called it the longest and largest reauthorization of the trust fund. But he noted Friday the gas tax will remain an outlier in his own legacy.

"While I'm not authorizing any other tax increase during my time as governor, I'm authorizing this one because of the importance of the Transportation Trust Fund, the tax fairness that we've accomplished together, and the compromise we've reached and because we need to responsibly finance this type of activity," Christie said.

He said he will encourage voters to get behind a November ballot question to constitutionally dedicate all new gas tax funds to transportation projects.

Key for gaining Christie's support has been something he coined "tax fairness," or his demand that the tax hike be met with a broad-based tax cut. The reduction in the sales tax, he said Friday, is the "first statewide tax cut that's been enacted in New Jersey that affects all New Jerseyans since 1994."

Christie said the deal came together within an hour before the late afternoon news conference.

While the leaders agreed it was necessary to increase the tax on gasoline sold in New Jersey by 23 cents a gallon to raise money for the depleted trust fund, they were divided on which taxes to cut in return.

Christie in June called for a reduction in the sales tax from 7 percent to 6 percent and allow more tax breaks for retirees. Sweeney refused to put that measure to a vote.

The Senate and Assembly separately agreed on a plan to eliminate the estate tax, raise a tax credit for the woking poor, lower taxes on retirement income and create income tax credits for commuters and veterans. Christie opposed that plan and the Democratic leaders struggled to mount an override.

Because Democrats don't have veto-proof majorities, any deal required backing from the governor, Senate president and Assembly speaker, forcing them to finally negotiate.

Under the agreement, a popular tax credit for low-income workers, the Earned Income Tax Credit, will increase from 30 percent of the federal limit to 35 percent.

The estate tax, a source of grief for those who say it drives wealth and residents out of the Garden State, would be phased out, with its $675,000 threshold rising to $2 million after Jan. 1 and then eliminated altogether after Jan. 1, 2018.

The gross income tax exclusion for retirement and pension income would gradually increase fivefold, and veterans would be eligible for a new income tax deduction.

The total tab of the tax cuts, according to the governor's office, would be $1.4 billion once fully implemented in 2021.

"We all compromised somewhat to get to this point," said Sweeney, who previously vowed to oppose any tax package exceeding his own $900 million in cuts, saying it threatened the stability of the budget.

"I'm sorry it took so long, but we all have strong personalities and sometimes it just takes time to get together," he said.

Industry groups said thousands of workers were taken off the job during the height of construction season, and municipal officials have warned of rising project bills through delay claims and remobilization costs.

"Today I have heard of many people who have had to actually file for bankruptcy. This is serious. The bad weather is coming. We need to put these people back to work," Prieto said.

The deal was praised by those who've called for a long-term transportation funding solution but criticized by advocacy organizations who say the tax cuts are more than the state can afford and will jeopardize crucial funding for safety net programs, public pensions and education.